Virtually any lending institution you attempt to obtain a loan from will want you to supply some form of guarantee that the loan will be repaid, and that often takes the form of collateral. Collateral can be any asset your business owns which has value in the open market, and can be redeemed so as to offset any potential losses a bank might incur.

Here’s what you need to know about using collateral to obtain a loan for your small business.

Keep meticulous records on your assets

It’s very common for the owner of an asset to think that is much more valuable than what a bank would appraise it for. That’s usually because owners paid a lot more for it than it’s actually worth on the open market currently. Your best bet is to keep very detailed records about your assets, so you’ll always be aware of their true value.

Understand what can be used as collateral

Any asset which you attempt to use as collateral should have a title of ownership, for instance cars or houses. It’s this title to the asset which a bank will seek, and which it will use when attempting to recoup any losses it might suffer, should you default on your loan repayment.

Know the risks

Basically, you need to be aware that there is a genuine risk of losing any asset you put up for collateral in a bank loan. That means you could lose your house or your car should you default on repaying the loan. In order to understand the risks better, talk to your financial advisor, so you don’t walk into the situation with blind eyes.

Negotiate if possible

If you have a good history of business credit, you may have some room to negotiate with your lender. That may help you to secure terms which are more favorable to you, and which you are more comfortable with. If collateral requirements with one bank call for possibly losing your house, you should check with several other banks to see if better terms can be obtained.

Are you interested in a collateral-backed small business loan? 

Loans backed by collateral are generally approved much faster and in far more cases than when no collateral is supplied, simply because it’s financially safer for the lender. If you’d like to obtain the more favorable terms associated with a collateral-backed loan for your small business, contact us at 5 Star Funding Group.